I am an Associate Professor of Law at the Zicklin School of Business (City University of New York), where I focus on sports, antitrust, gaming, and intellectual property law. I also teach the only course in the country on fantasy sports law and provide legal consulting in the industry.

Fantasy Sports Legal Issues Will Remain A Hot Topic In 2014

New fantasy sports businesses need to make sure the scales of justice are on their side. (Photo credit: Wikipedia)

Tomorrow evening marks the start of the Fantasy Sports Trade Association’s annual winter conference in Las Vegas, NV. This conference brings together business owners from throughout the fantasy sports industry, including employees of CBSCBS, YahooYahoo, ESPNESPN and the professional sports leagues.

One of the topics on the agenda is the biannual legal update.

Here are some of the key legal issues facing the fantasy sports industry in 2014:

1. Many, but not all, traditional forms of fantasy sports are likely legal under federal gaming laws. The Unlawful Internet Gambling Enforcement Act of 2006 includes an explicit carve-out for fantasy sports businesses that meet three criteria: (1) the value of the prizes is not determined by the number of participants or the amount of fees paid; (2) all winning outcomes reflect the relative knowledge and skill of the participants; and (3) the fantasy game’s result is not based on the final scores of any real-world games. Based on this carve-out, many traditional fantasy sports contests likely comply with federal regulations.

This puts fantasy sports industry overall in a far safer legal position than online poker, sports books, and many other types of online contests that involve both chance and skill. Nevertheless, this federal carve-out does not necessarily insulate all forms of fantasy sports games that currently appear on the Internet. Each fantasy game must be reviewed separately under the carve-out.

2. Some states’ regulations are stricter than federal law and need to be analyzed separately. A limited number of states disallow pay-to-play fantasy contests that involve any chance at all. In these states (known as ‘any chance states’), operating most forms of play-for-cash fantasy sports contests would seem to violate state gambling laws. Thus, even if a particular fantasy sports game seems to comply with federal law, it is not advisable to allow participants to enter if they are located within these ‘any chance’ states.

3. It is not always safe to rely on other fantasy contests’ lists of prohibited states to determine where play-for-cash fantasy sports is illegal. Although many fantasy sports hosts sites prohibit cash-game participants in the highest risk states such as Arizona, Louisiana, and Iowa, there are a number of other states in which play-for-cash fantasy sports still might be viewed as illegal, even though operating in these states may be prevalent. Three of these other states that require additional scrutiny include Arkansas, Montana and Tennessee. There are others as well.

4. New businesses should innovate with caution, as certain unique formats of fantasy sports are more risky. Even though traditional forms of fantasy sports are very likely legal in many states, any format of fantasy sports that strays from the traditional skill-to-chance ratio present greater risk. For example, fantasy football contests that give points based on the final scores of real-world sports games probably are not protected by the “fantasy sports” carve-out to the Unlawful Internet Gambling Enforcement Act, even though at least two Fantasy Sports Trade Association members ran contests of this nature as recently as 2012. In addition, fantasy sports contests that involve smaller roster sizes and shorter fantasy seasons seem to involve increased legal risk based on heightened impact of a single activity of chance on the overall result. Daily fantasy sports websites are best advised to conduct studies to attempt to prove their games are predominantly skill rather than just rely on personal intuition or hunch.

5. Even where states are not aggressively prosecuting fantasy sports, business owners should be aware of qui tam lawsuits by private plaintiffs. Last year there were two attempts to privately disgorge the winnings of daily fantasy sports contests under an Illinois qui tam statute. Although the more well-known case was dismissed on jurisdictional grounds, the court’s failure to resolve the underlying legal issues in that case leaves open the possibility of similar lawsuits emerging. Thus, it is reasonable to expect that some of the allegedly riskier forms of fantasy sports will continue to face legal challenges by private plaintiffs, even if these games are not challenged by state governments themselves.

In addition, he is an adjunct professor at Fordham Law School, and a legal consultant on sports, antitrust, gaming and intellectual property matters. Nothing contained in this article should be construed as legal advice.

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